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U.S. v. NORTH SIDE DEPOSIT BANK

February 14, 1983

U.S., PLAINTIFF
v.
NORTH SIDE DEPOSIT BANK, DEFENDANT; U.S., Plaintiff v. Liberty Vehicle Leasing, Inc., North Side Deposit Bank, Defendants



The opinion of the court was delivered by: MCCUNE

 Barron P. McCUNE, District Judge:

 Background

 This dispute arises out of the unfortunate financial condition of a family owned trucking company, deeply in debt to a small bank, which was struggling to keep the debtor afloat until it could be repaid. In the process, the bank became involved in the debtor's affairs.

 The Internal Revenue Code assiduously guards withholding and FICA and unemployment taxes. Three of the provisions of the Code are said to be applicable here in the first suit filed at No. 80-487, §§ 6672, 3505(a) and 3505(b).

 It is important to observe that these taxes are assessed by quarters of the year. It is assumed that it is well known that employers withhold these taxes and send them to the government at the end of each pay period, or to a depository bank.

 Section 6672 provides that "any person required to collect, truthfully account for, and pay over any tax imposed by this title, who wilfully fails to collect such tax or truthfully account for and pay over such tax or wilfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded or not collected or not accounted for and paid over."

 Under Section 6672 the taxes in question are those for the Third and Fourth quarters of 1975, and the First quarter of 1976.

 The same taxes are claimed under the provisions of Section 3505(a), plus the taxes for the Second quarter of 1975.

 That section reads as follows:

 
For purposes of sections 3102, 3202, 3402 and 3403 if a lender, surety or other person, who is not an employer under such sections with respect to an employee or group of employees, pays wages directly to such an employee or group of employees, employed by one or more employers, or to an agent on behalf of such employee, or employees, such lender, surety or other person shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) required to be deducted and withheld from such wages by such employer.

 The same taxes, plus the taxes for the Second quarter of 1975 are claimed under Section 3505(b).

 Section 3505(b) reads as follows:

 
If a lender, surety or other person supplies funds to or for the account of an employer for the specific purpose of paying wages of the employees of such employer with actual notice or knowledge (within the meaning of section 6323(i)(1) that such employer does not intend to or will not be able to make timely payment or deposit of the amounts of tax required by this subtitle to be deducted and withheld by such employer from such wages, such lender . . . shall be liable in his own person and estate to the United States in a sum equal to the taxes (together with interest) which are not paid over to the United States by such employer with respect to such wages. However, the liability of such lender . . . shall be limited to an amount equal to 25% of the amount so supplied to . . . such employer for such purpose.

 For the Fourth quarter of 1975, the taxes were assessed on April 5, 1976, in the amount of $39,592.24.

 For the First quarter of 1976, the taxes were assessed on May 11, 1976, in the amount of $49,974.30.

 For the Second quarter of 1975 (added under § 3505(a) and (b)), the taxes were assessed on August 11, 1975, in the amount of $82,754.41.

 Total assessments -- $196,515.62.

 Under §§ 6672, 3505(a) and 3505(b), the government generally claims that North Side was in such control of Liberty that North Side is liable for the taxes just as Liberty was liable; that those sections of the code were designed to prevent the loss of such taxes where employers become overextended and borrow money to meet payroll, so Northside was a person required to collect taxes, or paid wages directly or was a lender who knew that the borrower could not pay the taxes.

 It is observed that §§ 6672, 3505(a) and 3505(b) are alternate theories seeking recovery of the same taxes except for the second quarter of 1975 claimed under 3505(a) and (b) only.

 In the second suit at 81-551, the government asserts alternative theories, i.e., that Northside is liable for tortious conversion of property subject to federal tax liens, or is liable for breach of trust with respect to property ...


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